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COLA's Vanishing Act

Obama calls for $250 special payment for Social Security recipients

It could be 2012 before older Americans see an increase in their monthly Social Security benefits.

The government announced Friday that there will be no cost-of-living raise for the more than 58 million Social Security recipients in 2011. It’s the second year in a row that benefit checks didn’t adjust upward for inflation.

To compensate for the lack of a cost-of-living adjustment (COLA), the White House Friday said President Obama would renew his call for a $250 payment to Social Security recipients, a move he pushed for last year as part of the economic stimulus package. House Democrats also said they will try to push a similar measure when Congress reconvenes after the midterm elections in November.

Social Security COLAs are set annually by an inflation measure, the Consumer Price Index, which has been largely flat this year. But medical costs, on which older people spend much of their income, continued to rise faster than inflation. Advocates say that amounts to a reduction in income for retirees, workers with disabilities and their dependents.

COLA's Vanishing Act

— Plattform/Johnér Images/Corbis

"Over the past two years, older Americans have paid more for utilities and food, experienced a decline in housing values, tried to recover from deep retirement account losses, struggled with rising health and prescription drug costs, and faced longer periods of unemployment for those who need to work." said AARP Executive Vice President Nancy LeaMond.

“AARP is asking Congress to provide relief to millions of older Americans in the post-election session,” LeaMond said.

According to the SSA, Social Security checks for retired workers and their dependents now average $1,170 monthly. One in two married couples and three in four single people rely on Social Security for at least half of their income. Most older Americans have Medicare premiums deducted from their checks.

Medicare Part B premiums
Under a long-standing law, Medicare Part B premiums, which pay for doctors visits and other outpatient medical services, do not rise if the COLA doesn’t increase. But this only applies to certain groups. People who are already enrolled in Medicare and pay standard Part B premiums that are deducted from their Social Security checks will see no premium increase next year.  But others—who pay higher-income premiums, or do not have their premiums withheld by Social Security or are new to Medicare—may face an increase.  So far the government has not announced whether this will happen or, if it does, how much people in these categories will pay.

A need for more income
Forgoing a cost-of-living increase may not change people’s lifestyle, said Gene Dickison, president of MTM Financial Group in Bethlehem, Pa., and host of a local radio show, More Than Money. But, he said, older adults should look to generate increased income to make up for the COLA freeze.

He suggests that retirees in their 60s and 70s try to work part time both to make some money and to benefit from social contact. As for investments, Dickison recommends that investors consider short-term corporate bonds or high-dividend stocks to generate higher income payouts.

In October 2009, the government announced that COLAs would be frozen for 2010 because inflation was flat or in negative territory. Social Security recipients got a one-time $250 payment last year as part of the government’s economic recovery package but the Senate defeated a similar proposal last fall.

In 2008, beneficiaries received a 5.8 percent increase, the largest since 1982. They got a 2.3 percent COLA in 2007 and a 3.3 percent hike in 2006.

Social Security is supported by a 6.2 percent payroll tax, paid by workers and employers, on earnings up to $106,800. Since there is no COLA, that percentage will remain unchanged for 2011.

Carole Fleck is a senior editor at the AARP Bulletin.

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